Borders, Blockbuster and Tower Records were just some of the many traditional brick and mortar retailers who fell victim to Amazon.com, Inc. (NASDAQ:AMZN) and its e-commerce brethren. Today these brick and mortar retailers no longer exist, exist in name only, or have a retail presence a mere fraction of their past glory. Whether it was Amazon.com, Inc. (NASDAQ:AMZN)’s strategy of undercutting competitors with razor-thin profit margins or offering products and services in new and innovative ways, these retailers had their business models completely obliterated by the revolution that was e-commerce.
More than Just Skin Deep
Who: Sephora, subsidiary of LVMH Moët Hennessy • Louis Vuitton (NASDAQOTH:LVMUY).
What: Cosmetics and beauty products.
How: Offering an unmatched customer experience.
If any retailer epitomizes an outstanding customer experience, it is the cosmetics and beauty products retailer Sephora. With more than 1,400 stores in 30 countries, an online presence, and store shelves with hundreds of brands, Sephora is an absolute giant in the world of cosmetics retail. Sephora stores are designed to be a one-stop shop not just for makeup, skincare, bath and body, hair care and other beauty products, but for its services.
Known as Sephora Beauty Services, Sephora offers a number of free and incentive-based services for customers. These services include beauty and nail bars, free classes on a different beauty topic each month, free walk-in beauty sessions and one-on-one appointments with Sephora Expert Artists and Personal Beauty Advisors. These services accomplish the two main goals of any retailers. The free classes and walk-in sessions encourage customers to regularly visit their local Sephora and the inventive-based appointment services encourage buying; earning a 45-minute customized makeup application session with a $50 purchase or a 90-minute personal beauty advisor consultation with a $125 purchase. Good luck getting that kind of customer experience from Amazon.com, Inc. (NASDAQ:AMZN).
Rose-Colored Glasses
Who: LensCrafters, subsidiary of Luxottica (NYSE:LUX).
What: Prescription framed and sunglasses.
How: Selling prescription required products and doctor required services.
LensCrafters is the largest prescription eyewear retailer in the United States. As a store that is dedicated to selling products that require a doctor’s prescription, it certainly helps to have an optometrist on-site to administer an eye exam, diagnose and treat any eye problems, and to prescribe corrective lenses if required.
And that is LensCrafters’ business model, operating with a doctor of optometry inside or next to a LensCrafters location, allowing both business entities to benefit each other presence. While online retailers can offer prescription eyewear, none of them have the ability to administer a doctor’s eye exam, offer savings on combined optometry service and prescription from purchases or to provide personalized sizing of the eyeglass frames to the unique shape of each customer’s head. Until the day when Amazon.com, Inc. (NASDAQ:AMZN) is somehow able to conduct all of these services through a user’s webcam, good old fashion human interaction remains a must for this retail segment.
Pour a Cup of Profits
Who: Teavana, subsidiary of Starbucks (NASDAQ:SBUX).
What: Premium loose leaf teas and tea accessories.
How: Selling exclusive luxury products to underserved US tea market.
Although tea is the world’s second most consumed drink (second only to water), it is a distant sixth in the United States. That has been changing in recent years however, as increasingly health-conscious American consumers have been trending away from unhealthy soda and towards healthier tea. Despite these changing beverage demographics, there were not many companies looking to serve this underserved market. And that was precisely the thinking of Teavana’s founders when they started the company in 1997.
Teavana wants to change American tea much the same way Starbucks (NASDAQ:SBUX) changed American coffee. Before the arrival of Starbucks, coffee was simply a large tin can full of bland beans. Starbucks turned that product into the variety of coffee blends we have today. Modeled after tea houses found abroad, Teavana looks to similarly take the bland supermarket tea bag and transform it into a market for premium specially blended loose-leaf tea. Teavana stores have positioned themselves as a luxury retailer selling exclusive tea-concoctions blended with unique ingredients (fruits, chocolate, nuts, spices) or blended with many other types of tea to create a combination of flavors not found anywhere near the store shelves of a supermarket.
Foolish Bottom Line
What conclusions can be drawn from this? The things that appear to set these three apart from other brick and mortar stores are (1) combination of excellent customer experience, (2) regulatory hurdles (prescription products/services), or (3) creating a new market where there was none before.
In the time of Amazon.com, Inc. (NASDAQ:AMZN), it seems clear that a retailer needs to do more than simply sell the same types of products that can be found everywhere. To compete with Amazon.com, Inc. (NASDAQ:AMZN) you need something more. You need to offer something that Amazon.com, Inc. (NASDAQ:AMZN) can’t or give customers something Amazon.com, Inc. (NASDAQ:AMZN)Amazon.com, Inc. (NASDAQ:AMZN) is unable to give. When looking for investment opportunities in brick and mortar retail, search out for retailers with these and similar characteristics.
